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Prejudice and Racial Matches in Employment

Bond, Timothy N. and Lehmann, Jee-Yeon K. (2015): Prejudice and Racial Matches in Employment.

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Abstract

We develop a job search model in which some employers hold unobservable racial prejudice toward black workers. Prejudiced employers may refuse to hire black workers and may terminate them based on their prejudice. Workers do not observe employer prejudice, but instead observe a signal of prejudice status, the presence of a black supervisor. We show that jobs in firms with black supervisors hold higher option value for black workers, because they are less likely to face prejudice-based termination. Hence, black workers are willing to accept employment with lower expected match quality from firms with black supervisors. We derive theoretical predictions on racial differences in observed wages and job stability across supervisor races and variations in local prejudice levels. We find empirical support for our predictions using unique longitudinal data with information on the worker's supervisor race matched with state-level measures of prejudice.

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